TransferWise was founded in 2010 and launched its service in January 2011. The profile of its funding, valuation and financial results, and a comparison with Square, makes an interesting case study of a fintech startup.

The company has raised $107m in private equity finance in 5 rounds of investment starting in January 2012. The initial service was launched without any external funding. The majority of ordinary shares were, and still are, held by the founders Kristo Kaarmann and Taavet Hinrikus. The first external round was a seed round of $1.3m, at a post money valuation of $5.2m, giving the seed investors 26% of the equity at that time. The details of the funding rounds are set out in the table below.

TransferWise Private Equity Financing History

For the year to March 31st 2016, the company reported revenues of £28m and a loss before tax of £17m. The accumulated deficit at this point was £31m. This is effectively Year 5 of operations, having launched in 2011. An interesting comparison is with Square which launched in 2010. For Square, Year 5 was 2014. The figures for the 2 companies are set out in the table below (with TransferWise figures converted to US dollars at the March 31st 2016 $/£ rate of 1.44). You can see that Square achieved a much bigger scale of operation in 5 years and, relatively speaking, used less capital.

Comparison of Selected Statistics

A valuation comparison at the end of Year 5 is only indicative. For TransferWise, based on the Series D round, it was $971m. For Square, based on its Series E round during 2014, it was about $4.5bn, more than 4 times higher than TransferWise.

The Square IPO at the end of 2015 was priced at $9 even though the final Series E round was at $15 per share. However, the Series E investors were provided with a “ratchet” and so the base cost of the Series E shares was reduced to around $8. The shares then increased by 45% on the first day of trading, valuing the company at just over $4bn. The market value as of February 2017 was around $6bn. The company is growing revenues fast but is still not profitable at the headline level.

The challenge for TransferWise is to grow into the valuation of $971m that was put on the company at the last financing round, and if more capital is needed before an IPO or trade sale, how to attract that capital without having to accept a lower valuation.

 

Michael Pearson, 7th March 2017